KPREIT shifts offhore subsidiary from St Lucia to Cayman amid restructuring

Kingston Properties Limited has shifted one of its offshore subsidiaries from St Lucia to the more tax-lenient Cayman Islands, renaming it KPREIT (Cayman) Limited in the process.

The move follows changes to the tax laws in St Lucia that put an end to the 1.0 per cent marginal tax rate that international business companies, or IBCs, were charged up to last year.

But Kingston Properties CEO Kevin Richards, while acknowledging the IBC reform was a factor, insists it was not the primary driver of the company’s decision to redomicile the subsidiary.

Business done in St Lucia by offshore companies will now pay a corporate tax rate of 30 per cent on income earned in that country, a 29-point jump. Barbados, another Caribbean offshore jurisdiction, also increased its corporate rate to 25 per cent.

The reforms follow pressure from rich nations seeking to dismantle havens that shield the incomes and assets of large corporations and rich individuals from taxes in their home countries.

But in the Cayman Islands, one of the world’s favoured tax havens, the corporate tax rate is zero.

Kingston Properties, a real estate investment trust, has been reforming the geographic mix of its property portfolio to reduce its exposure to the Florida market. It’s been doing more investments in Jamaica and Cayman, while selling down condominium assets in the United States.

Its Cayman assets were held through Kingston Properties (St Lucia) Limited, which re-registered in Cayman on January 4 as KPREIT Cayman, a day the shareholdings in that company were transferred to a vehicle called KPREIT (St Lucia) Limited under a restructuring of the holding entities.

“Given that all the properties held in that company are in the Cayman Islands, we decided to create a company in Cayman Islands to hold those assets. We still have to pay the Government, but there is no property tax, no income tax,” Richards told the Financial Gleaner.

Last year, Kingston Properties earned $1.44 million in revenue from Jamaica, US$1.27 million from the Cayman Islands, and US$201,000 in the United States. Its assets are mainly distributed in Jamaica, US$50 million; followed by Cayman, US$21 million; and the United States, US$4.2 million.

In Jamaica, Kingston Properties has been buying up commercial real estate. In Cayman, it entered into a US$3.13-million deal with a developer in recent months to acquire three of four residential units in a mixed-use industrial development in the Cayman Islands called Gum Tree 5. The units are slated for completion in October.

In Jamaica, Kingston Properties is taxed at a marginal rate of 25 per cent, and in Florida at 21 per cent. But allowances for tax losses have served to keep its tax bill low over the years. Last year, for example, the company paid taxes of US$78,600 against profit of $3.1 million, an effective tax rate of 2.5 per cent. The year before that, it paid no corporate tax against a profit of US$597,000.

Richards says shifting the KPREIT subsidiary to a different offshore haven would “not necessarily” lead to further tax savings.

“As I said, most of the assets are in Cayman, it would make sense to create a Cayman company to hold those properties ... and that’s allowed, obviously,” he said.

karena.bennett@gleanerjm.com